U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
[ ] Transition report under section 13 or 15(d)
of the Exchange Act.
COMMISSION FILE NUMBER 0-27897
IP FACTORY, INC.
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(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4737507
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
860 VIA DE LA PAZ, SUITE E-1, PACIFIC PALISADES, CA 90272
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(310) 230-6100
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(ISSUER'S TELEPHONE NUMBER)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
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As of May 8, 2000, there were 1,019,000 shares of Common Stock, $0.001 par
value, of the issuer outstanding.
Transitional Small Business Disclosure Format (check one)
YES NO X
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<PAGE>
IP FACTORY, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER
Item 1. Financial Statements
BALANCE SHEET AS OF MARCH 31, 2000 2
STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND FOR THE PERIOD FROM
NOVEMBER 20, 1998 (INCEPTION) TO MARCH 31, 2000 3
STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND FOR THE PERIOD FROM
NOVEMBER 20, 1998 (INCEPTION) TO MARCH 31, 2000 4
NOTES TO FINANCIAL STATEMENTS 5-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports filed on Form 8-K 10
Signatures 11
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
IP FACTORY, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
ASSETS
March 31,
December 31, 2000
1999 (Unaudited)
---------------- -------------
Cash $ 200 $ 155
---------------- -------------
TOTAL ASSETS $ 200 $ 155
- ------------
================ =============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
LIABILITIES
Loan payable - related party $ 5,570 $ 13,720
---------------- -------------
TOTAL LIABILITIES 5,570 13,720
---------------- -------------
STOCKHOLDERS' DEFICIENCY
Preferred stock, $.001 par value,
8,000,000 shares authorized,
none issued and outstanding - -
Common stock, $.001 par value,
100,000,000 shares authorized,
1,019,000 issued and outstanding 1,019 1,019
Accumulated deficit during
development stage (6,389) (14,584)
---------------- -------------
TOTAL STOCKHOLDERS' DEFICIENCY (5,370) (13,565)
---------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
- -----------------------------------
DEFICIENCY $ 200 $ 155
---------- ================ =============
See accompanying notes to financial statements.
2
<PAGE>
IP FACTORY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(UNAUDITED)
November 20, For the
1998 Three
(Inception) to Months
March 31, 2000 Ended March
31, 2000
----------------- -------------
INCOME $ - $ -
----------------- -------------
EXPENSES
Accounting fees 2,500 2,000
Bank service charge 165 45
Consulting fees 769 -
Legal fees 8,000 3,000
Office and postage expense 750 750
Rent 2,400 2,400
----------------- -------------
NET LOSS $ (14,584) $ (8,195)
- --------
================= =============
NET LOSS PER SHARE -
BASIC AND DILUTED $ (0.0197) $ (0.0080)
================= =============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD -
BASIC AND DILUTED 739,884 1,019,000
================= =============
See accompanying notes to financial statements.
3
<PAGE>
IP FACTORY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
November 20, For the
1998 Three Months
(Inception) to Ended March
March 31, 2000 31, 2000
---------------- --------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (14,584) $ (8,195)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Stock issued for consulting services 19 -
---------------- --------------
Net cash used in operating
activities (14,565) (8,195)
---------------- --------------
CASH FLOWS FROM INVESTING
ACTIVITIES: - -
---------------- --------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Loan payable - related party 13,720 8,150
Proceeds from issuance of common
stock 1,000 -
---------------- --------------
Net cash provided by financing
activities 14,720 8,150
---------------- --------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 155 (45)
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD - 200
---------------- --------------
CASH AND CASH EQUIVALENTS -
END OF PERIOD $ 155 $ 155
- --------------- ================ ==============
See accompanying notes to financial statements.
4
<PAGE>
IP FACTORY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENT
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Organization and Business Operations
IP Factory, Inc. (a development stage company) ("the Company") was
incorporated in Delaware on November 20, 1998 to engage in an
internet-based business. At March 31, 2000, the Company had not yet
commenced any revenue-generating operations, and activity to date
relates to the Company's formation, proposed fund raising and
business plan development.
The Company's ability to commence revenue-generating operations is
contingent upon its ability to implement its business plan and raise
the capital it will require through the issuance of equity
securities, debt securities, bank borrowings or a combination
thereof.
(B) Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles, and the
rules and regulations of the Securities and Exchange Commission for
interim financial information. Accordingly, they do not include all
the information necessary for a comprehensive presentation of
financial position and results of operations.
It is management's opinion, however that all material adjustments
(consisting of normal recurring adjustments) have been made which are
necessary for a fair financial statements presentation. The results
for the interim period are not necessarily indicative of the results
to be expected for the year.
In addition, the accompanying financial statements do not include the
statement of operations or cash flows for the three months ended
March 31, 1999 since the Company was inactive during this period.
For further information, refer to the financial statements and
footnotes included the Company's Form 10-KSB for the year ended
December 31, 1999.
5
<PAGE>
IP FACTORY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENT
(C) Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(D) Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers
all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
(E) Income Taxes
The Company accounts for income taxes under the Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("Statement 109"). Under Statement 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax basis. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the three months in which those temporary differences are expected
to be recovered or settled. Under Statement 109, the effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
There were no current or deferred income tax expenses or benefits due
to the Company not having any material operations for the three
months ended March 31, 2000.
(F) Loss Per Share
Net loss per common share for the three months ended March 31, 2000
and for the period from November 20, 1998 (inception) to March 31,
2000 is computed based upon the weighted average common shares
outstanding as defined by Financial Accounting Standards No. 128
"Earnings Per Share". There were no common stock equivalents
outstanding at March 31, 2000.
6
<PAGE>
IP FACTORY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENT
NOTE 2 LOAN PAYABLE - RELATED PARTY
The loan payable - related party is a non-interest-bearing loan
payable to PageOne Business Productions, LLC arising from funds
advanced to the Company. The amount is due and payable upon demand.
NOTE 3 STOCKHOLDERS' DEFICIENCY
The Company was originally authorized to issue 100,000 shares of
preferred stock at $.01 par value, with such designations,
preferences, limitations and relative rights as may be determined
from time to time by the Board of Directors. In addition, the Company
was originally authorized to issue 10,000,000 shares of common stock
at $.001 par value. The Company issued 909,500 and 109,500 shares to
Appletree Investments Company, Ltd. and PageOne Business Productions,
LC, respectively.
Management filed a restated certificate of incorporation with the
State of Delaware which increased the number of authorized common
shares to 100,000,000, increased the number of authorized preferred
shares to 8,000,000 and decreased the par value of the preferred
shares to $.001 per share. The financial statements at March 31, 2000
give effect to common and preferred stock amounts and par values
enumerated in the restated certificate of incorporation.
NOTE 4 GOING CONCERN
As reflected in the accompanying financial statements, the Company
has had accumulated losses of $14,584 since inception, a working
capital deficiency of $13,565 and has not generated any revenues
since it does not yet implemented its business plan. The ability of
the Company to continue as a going concern is dependent on the
Company's ability to raise additional capital and implement its
business plan. The financial statements do not include any
adjustments that might be necessary if the Company is unable to
continue as a growing concern.
The Company intends to implement its business plan and is seeking
funding through the private placement of its equity or debt
securities or may seek a combination with another company already
engaged in its proposed business. Management believes that actions
presently being taken provide the opportunity for the Company to
continue as a going concern.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis below should be read in conjunction
with the financial statements, including the notes thereto, appearing elsewhere
in this report.
PLAN OF OPERATIONS
IP Factory will function like the "old days" movie studios. There will be a
team of creatives and a team of business management. The entirety of these teams
will work on each and every project together. Together, they will all be known
collectively as the Talent. As was the case with the old film studios, each
project will assemble a team from within the group, having a team leader
(director or producer) and the creative and business backup. This will be the
case whether it is a client side project or an internal one. If you think of it
like day jobs and jobs of passion, this will be good. The day job will be the
client projects.
EXAMPLE: Cisco Systems hires IP Factory (IPF) to produce a show for Broadband
distribution, they will pay IPF a fee. After salaries and other company
expenses, the net will be put back into the company and be applied to internal
projects. The internal talent will pitch show concepts to management on a
frequent basis. Though we will definitely start with a "slate" of internal
shows, we plan to enlarge that slate form year to year. We may even adjust the
initial slate depending on what our talent initially pitches.
By following this model, we will secure equity in all projects we produce
whether they are client side applications or self-produced projects (this is
because we will provide the means of distribution similar to the way the old
studios did it). In the above example, we will retain a small percentage of
equity in the client product and, ideally through our relationship with Fusebox
and Webcasts.com, we will also provide the hosting facility and the means of
distribution, respectively. Additionally, our investors will be appeased by the
client side as that will be the thing, at first, that keeps the cash flowing in
and gives us the ability to commit to a reasonable ROI. It follows that the
talent we bring in will all be established professionals in their respective
fields and have their own contacts that can be made to be clients or strategic
relationships or both.
Another important factor of the company is the uniqueness from which it is
being sprung. Contrary to traditional start-ups that create a business plan and
see it through, we will be creating a show and forming the business plan from
the actual success of the proprietary side products. Of course, we will be
earning money through the client side, but our real agenda will be to form the
internal production side of the company through proven successes on that front.
Once we are seeing a high and steady stream of revenue from our own projects, we
may spin off the client side into another company or drop it all together
depending on the resources available at that time. If we do spin it off, we may
be able to acquire investment at that time for the spin off company and see that
one through to IPO. The value will then be the clients and the equity we retain
in the shows we produce for them. The internal side would remain private and
continue to reap extensive profits and build equity through intellectual
property. In the long term, the company will continue to collect additional
revenue streams through continued residual distribution paid by performing
rights societies, guilds, etc.
8
<PAGE>
Lastly and a potentially very lucrative prong to the revenue model,
additional revenue streams include merchandising, both traditional and online,
e-commerce, advertising, singular show sponsorships, licensing, publishing
residuals, cross media platform applications, proprietary software, product
placement, etc.
Shows within the Shows - Advertising Model
Client. We proposed approaching the investor relations departments at some
of the fortune 500 companies and building ad campaigns for them for the next
century type thing. For example, we could build a high-speed show (really an ad)
for Coke that would be the first of its kind for Broadband. If we have the
shows, we have to have the ads. However, the ads don't have to be 30, 60 and
1:30 spots like traditional TV. They could and should be shows within the shows.
Most of the upper management team cannot be formally named at this time due
to their current positions. They are involved in employment contracts and cannot
afford to jeopardize their positions, stock, etc. with their current companies
until we are funded and ready to roll out. This is why we cannot utilize bios,
info on them. What Internet producers call rich media (the best in web
broadcast), television execs simply call TV. The market is wide open for high
speed "rich media" and IP FACTORY intends to be the providers.
The Company has registered a dot.com name and has determined it can begin
conducting its business with limited financing that it has arranged.
LIQUIDITY AND CAPITAL RESOURCES
For the period since inception (November 20, 1998) through March 31, 2000,
during the Company's development stage, the Company has a positive cash balance
of $155.00, has generated a net loss of ($14,584.00) and has a working capital
deficiency of $13,565.00. Since its organization, IP Factory has satisfied its
cash requirements through sales of Common Stock and cash advances from its
current stockholders. Our uses of cash have been professional fees, printing
costs, postage expenses and similar disbursements relating to the organization
of IP Factory, filing of its registration statement on Form 10-SB and the costs
of filing periodic reports with the Securities and Exchange Commission. Certain
current stockholders have agreed, in their discretion, to make advances, if need
be, to fund IP Factory's immediate cash needs. The Company will also seek
funding through private placements of its securities and may seek a suitable
business combination.
9
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports filed on Form 8-K
(a) Exhibits
Exhibit No. Description
---------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
10
<PAGE>
SIGNATURES
----------
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
IP FACTORY, INC.
----------------
Registrant
May 15, 2000 By: /s/ James P. Walters
------------ --------------------------------
James P. Walters
Chief Financial Officer
(Principal Financial Officer)
11
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 155
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 155
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 155
<CURRENT-LIABILITIES> 13,720
<BONDS> 0
0
0
<COMMON> 1,019
<OTHER-SE> (14,584)
<TOTAL-LIABILITY-AND-EQUITY> 155
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,195
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8,195)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,195)
<EPS-BASIC> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
